by Cody Hodge

Created on: June 18, 2008   Last Updated: June 19, 2008

In 2008 the economy of the United States is in shambles. The dollar is at a historic low compared to the Euro and Canadian dollar, the prices for everything from fuel to food are skyrocketing, and unemployment is on the rise. With major companies looking to cut its workforce to save money, some people have decided to go on their own and start their own business. The question is though, is it easier to start your own business from scratch, or buy a franchise and piggyback off a proven business model.

According to the US chamber of commerce, there are three main questions you should ask yourself before making this decision. First, do you want to be your own boss? Second, is this a unique idea that you want to nurture to fruition? Lastly, do you want to make a lot of money quickly? If you answered yes to any of these questions, then you probably don't want to buy a franchise, as a franchisor will limit your ability to make decisions and operate your business independently. And although franchises have had more success stories, it can be costlier to operate a franchise, between increased startup costs and royalties that must be paid to the franchisor. Dr. Timothy Bates of Wayne State University did a study in which the failure rate of some franchises was more than the the thirty to fifty percent failure rate of new businesses. Not only that but that franchisees made less profit than new business owners and that it cost 500,000 dollars to start up a franchise compared to 100,000 dollars for a new business on average.

So, is 2008 a great time to invest in a franchise? It really depends on who you are. It is said that the profile of a franchisee is typically someone who is retired, has extra capital, and/or would like to run a business but does not have the experience necessary to run that type of business on their own without training. Also keep in mind that if you buy a franchise that the usual contract is five to twenty years in length and has significant legal consequences if you break the contract early. According to Nolo.com "most franchisors make franchisees sign agreements waiving their rights under federal and state law, and in some cases allowing the franchisor to choose where and under what law any dispute would be litigated."

Why is this important? As the economy struggles to regain any momentum, you want to make sure that you can turn a profit, and avoid any monetary problems that can come with a risky investment in a tumultuous economy. According to entrepreneur.com, the top five franchise businesses were: Subway, Dunkin Donuts, Jackson-Hewitt, 7-11 and The UPS Store. Average start up costs for these companies were 50,000-225,000 dollars, so they were relatively inexpensive. Others though in the top ten such as McDonalds, and Papa John's ranged from 250,000 to over two million dollars.

So as the data shows, starting a business and owning a franchise both have ups and downs. Owning a franchise can work in 2008, you just have to know what your financial situation is, and where you are investing. As with any decision take your time, do your homework, and have the confidence that you can succeed.

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